- By Blake Hounshell
Blake Hounshell is managing editor at Foreign Policy, having formerly been Web editor. Hounshell oversees ForeignPolicy.com and has commissioned and edited numerous cover stories for the print magazine, including National Magazine Award finalist "Why Do They Hate Us?" by Mona Eltahawy. He also edits The Cable, FP's first foray into daily original reporting, and was editor of Colum Lynch's Turtle Bay, which in 2011 won a National Magazine award for best reporting in a digital format.
Blake joined Foreign Policy in 2006 after living in Cairo, where he studied Arabic, missed his Steelers finally win one for the thumb, and worked for the Ibn Khaldun Center for Development Studies. Blake was a 2011 finalist for the Livingston Awards prize for young journalists for his reporting on the Arab uprisings, and his Twitter feed was named one of Time magazine's "140 Best Twitter Feeds of 2011." Under his leadership, in 2008, Passport, FP's flagship blog, won Media Industry Newsletter's "Best of the Web" award in the blog category. Along with Elizabeth Dickinson, he edited Southern Tiger: Chile's Fight for a Democratic and Prosperous Future, the memoirs of former Chilean president Ricardo Lagos, published by Palgrave Macmillan in 2012.
A graduate of Yale University, Blake speaks mangled Arabic and French, is an avid runner, and lives in Washington with his wife, musician Sandy Choi, and their toddler, David. Follow him on Twitter @blakehounshell.
P.T. Barnum, the great American circus showman, may or may not have actually said of his customers, “there’s a sucker born every minute,” but it’s a maxim that could just as well have applied to the recent financial crisis.
I’m reminded of the apocryphal quote after reading Gretchen Morgenson and Louise Story’s somewhat convoluted, but nonetheless interesting report in today’s New York Times on how the investment bank Goldman Sachs allegedly played both sides of the market for mortgage-backed securities and is now being scrutinized by various regulators looking to determine whether any laws or industry rules were broken:
While the investigations are in the early phases, authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them, people briefed on the matter say.
One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.
Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created.
I’m no lawyer, but my take is that it’s not Goldman’s fault if its customers were suckers; the bank correctly saw that the U.S. housing sector was headed south and adjusted accordingly, while less prudent financial institutions were still making big bucks on complex securities tied to mortgages and couldn’t wean themselves away in time to save themselves from disaster. As the firm’s spokesman says in the story, it’s not like these customers, pension funds and insurance companies, were rubes who didn’t know what they were getting into. They were sophisticated financial players looking for high returns and willing to take risks.
Still, Goldman stands accused of some breathtakingly cyncial behavior here: selling products it didn’t believe were worthy investments and then betting against them. It’s as if McDonald’s were caught investing in defibrillators and plus-size clothing companies. Nobody can deny, however, that Goldman made very smart moves and has come out far ahead of its competitors.
One thing I’m struck by in recent accounts of the financial crisis is the extent of “Goldman envy” among other Wall Street firms. Executives at J.P. Morgan, Lehman Brothers, Merrill Lynch, Bear Stearns, Morgan Stanley, and other big banks were obsessed with emulating Goldman’s huge profits and resented its employees’ reputation for being the smartest, boldest players on Wall Street. In some cases, the interfirm jealously was kind of like that of the character Jan on The Brady Bunch; just replace “Marsha, Marsha, Marsha!” with “Goldman, Goldman, Goldman!”
Yet somehow, with the possible exception of J.P. Morgan, which avoided the worst of the mortgage junk thanks to smart risk management by CEO Jamie Dimon, the other banks didn’t follow Goldman’s lead when in December 2006 the firm turned bearish on the mortgage sector. Why didn’t they catch on?
UPDATE: Be sure to read Felix Salmon’s informed analysis. Money quote:
The real lesson here isn’t that Goldman did anything scandalous. It’s just that if you’re making a bet and Goldman is your bookmaker, don’t be surprised if you end up losing.
Spencer Platt/Getty Images